“Brief” will require cutting a lot of corners, but here goes:
[B]1.[/B] The CFTC (U.S. regulator) was established by Congress to regulate commodity futures (as their name indicates).
[B]2.[/B] When retail forex began to rise in popularity in the U.S., the CFTC wanted control of it, as well, arguing that spot forex is really just a thinly-disguised futures product.
[B]3.[/B] A fight ensued between the CFTC and other players in the financial arena over the CFTC’s claim of jurisdiction over spot forex.
[B]4.[/B] The CFTC’s real motive (which they have never admitted, and probably never will admit) is to destroy retail off-exchange forex trading. It’s the “off-exchange” aspect of retail forex that they hate. The CFTC wants nothing less than to force all spot forex trading (retail and institutional) onto a futures-style exchange, with contract specifications and clearing procedures dictated by the regulator.
[B]5.[/B] Phase One of the CFTC’s assault on spot forex trading in general, and retail spot forex trading in particular, was to decree that spot forex leverage would be limited to 10:1. Most of us believe that they never expected to achieve a 10:1 limit, but rather used that threat to get the 50:1 limit they really sought (and achieved). In addition, the CFTC banned hedging in forex accounts, and required a first-in-first-out (FIFO) order processing protocol. By imposing these burdens on U.S. retail forex traders, the CFTC made enemies of a large segment of the trading community.
[B]6.[/B] Phase Two involved prohibiting U.S. forex brokers from hosting U.S. clients in their offshore branches. Example: FXCM-UK was prohibited from having U.S. clients in their U.K. branch, where the 10:1 leverage restriction, the hedging ban, and the FIFO rule did not apply to customer accounts. Many U.S. traders who had moved their accounts to their brokers’ offshore branches had those accounts closed and “repatriated” to their brokers’ U.S. branches (where CFTC rules applied).
[B]7.[/B] Phase Three involved strong-arm tactics used against many foreign governments, in the form of agreements known as Memoranda of Understanding (MoU’s). These agreements required (among many other provisions) that the foreign governments coerced into signing them would enforce the U.S. CFTC rules and regulations on all U.S. residents who trade forex with brokers in those countries. The result of these MoU’s (in most cases) has been that forex brokers in MoU-signatory countries choose to exclude U.S. residents as clients, rather than deal with the burdensome problem of having two separate sets of Terms and Conditions — one for U.S. residents, and another for everyone else.
[B]8.[/B] Bottom line: the CFTC is strangling off-exchange spot forex in the U.S. The number of U.S. forex brokers has declined from dozens to about six, in the 5 years that we have been operating this thread.
[B]
9.[/B] As freedom-loving U.S. forex traders rebel against the tyranny of the CFTC, by finding offshore brokers with advantageous Terms and Conditions who will deal with us as clients, the CFTC works to defeat our efforts. If MoU’s cannot be implemented in countries like SVG, the CFTC enlists the services of other U.S. financial regulators to make money transfers to and from banks and brokers in those countries difficult or impossible for U.S. residents. This assault on the banking aspect of offshore trading is rapidly becoming Phase Four in the CFTC’s war against off-exchange spot forex trading.
Okay, that wasn’t very brief. But, it’s about as brief as I can make it, without totally distorting the facts.
Taxes are not the focus of this war between the CFTC and the American people. Taxes are calculated and collected by the IRS, a totally different agency. U.S. citizens (whether they are U.S. residents, or not) are required to pay taxes on their worldwide income, wherever earned. This applies to forex profits, just like any other form of income, whether earned through trading with a U.S. broker, or with an offshore broker. The IRS doesn’t care, either way.
The IRS is not at war with offshore forex accounts. The CFTC is.
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I understand it now, thank you!